What Is Builder's Risk Insurance?
Builder’s Risk Insurance is specifically designed to protect buildings and Structures that are being built or renovated. Not only does it cover the costs of construction it also covers the equipment being used in the construction project. Builder’s Risk coverage can include protection for materials, equipment added to the property such as elevators and HVAC systems, labor costs and expenses as well as temporary structures such as scaffolding and even landscaping.
Who needs Builder's Risk insurance?
This depends on how construction will be performed. Will the owner be the General Contractor or will the General Contractor be hired by the owner? These are the two most common situations. In these situations the owner or the GC should obtain Builder’s Risk Insurance. Where there is a lender they will require coverage before the loan is funded. The coverage will name the lender as an additional insured in case of a loss.
What is covered by Builder’s Risk Insurance?
In addition to the materials and Builder’s Risk Insurance also helps cover the following items
- Property Replacement The most important coverage Builder’s Risk Insurance provides is replacement cost coverage equal to the value of the property lost. Having the right valuation for the project is extremely important.
- Profits Builder’s Risk Insurance covers more than just labor, materials and equipment that are needed for new construction project, it can cover profits as well. General Contractors can be reimbursed for a percentage of profit earned as of the date of the loss.
- Debris Removal The cost resulting with cleaning up debris after a construction accident can be enormous. Builder’s Risk Insurance will cover those costs up to the amount listed in the policy.
- Temporarily stored materials or equipment Contractors will often store important and expensive materials and equipment off-site, that will be used in the course of the project. With Builder’s Risk cover these items are covered while they are being stored or in transit to the job-site.
- Valuable Papers and Electronic Data Contractors use blueprints, schematics and other paper and electronic documents and data in the course of conducting their business. Builder’s Risk Insurance can restore and replace important documents and electronic data that were lost in a covered risk.
- Contamination Cleanup and Removal When a fire or other covered cause of loss occurs at the project site, pollutants may be released causing damage to land or water.
- Building Ordinance or Law Building codes can change a great deal from the start of a project through its completion. In the event that an ordinance or law changes during the construction project and causes a delay or loss in profits, Builder’s Risk Insurance will help cover that loss.
How much does Builder’s Risk Insurance cost?
On average, the Builder’s Risk Insurance cost ranges anywhere from 1% to 5% of the total construction costs. The exact cost depends on the following factors;
- Cost of the Project: This will be the single most important item in determining your cost. The following factors will also play a role in your final cost.
- Length of Project: It stands to reason that a project that will be completed in 90 days will less of a chance to be damaged by fire other other natural disaster than a project lasting a year.
- Exclusions in Policy: Some contractors just want the basic and cheapest policy. This can be expensive in the long run. You need to discuss with your agent various coverage options to see what is right for you. Other optional coverage may include soft costs, earthquake coverage, flood coverage, legal fees, license fees and/or additional expenses that cover business income
- Geographical Location of Project: Projects on the coast are subject to greater risk of loss from hurricanes, wind and flooding than inland locations. Accordingly these policies will be more money. FEMA has a map of high risk areas HERE.
- Type of Construction: Frame structures are more susceptible to fire and wind damage than masonry construction and are therefore more expensive to insure.